January 23, 2008

J. Crew: A Multichannel Money-Printing Machine

Less than six years ago, it was easy to pick on J. Crew.

There aren't many people picking on J. Crew (JCG) these days, are there?

Through the first nine months of 2007, J. Crew generated a staggering 13.8% EBIT as a percentage of Revenue, according to their most recent 10-Q statement.

Take a look at the financial performance by "channel":

J. Crew Financial Performance Through Three Quarters

YTD 2007 YTD 2006 Change
Catalog Pages Circulated

Telephone Sales $56.7 $60.4 -6%
E-Commerce Sales $194.7 $135.0 44%
Total Direct Channel $251.4 $195.4 29%
Retail Store Sales $654.2 $566.7 15%
Other Revenue $29.2 $23.3 25%
Total Revenue $934.8 $785.4 19%

Notice that in spite of a 5% decrease in catalog pages circulated, e-commerce sales increased 44%. Here is what management had to say about catalog circulation:

"We continue to see a shift of Direct customers from catalog to the Internet. We evaluate the efficiency of our circulation strategies on a continuing basis and make adjustments as we deem appropriate."

Do you think the adjustments are working?

Based on all of the data I've analyzed over the past decade, I am convinced that most of the brands we manage have fat to cut in the print channel. We need to do a better job of evaluating each advertising channel as an investment.

Financially, we're told to diversify our investments if we want to protect our retirement income. Similarly, we need to do a better job of re-allocating our print investment into better-performing online advertising channels. Our measurement methodologies and belief systems prevent us from making necessary progress.

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